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Remuneration report

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This report is made by the Board on the recommendation of the Remuneration Committee. The first part of the report provides details of remuneration policy. The second part provides details of the remuneration, pensions and share interests of the Directors for the year ended 24 March 2007. The Directors confirm that this report has been drawn up in accordance with Schedule 7A of the Companies Act 1985.

A resolution will be put to shareholders at the Annual General Meeting (“AGM”) on 11 July 2007 asking them to approve this report.

Remuneration Committee

The Remuneration Committee is chaired by Bob Stack, Chief Human Resources Officer of Cadbury Schweppes plc. The Committee comprises Bob Stack, Anna Ford and Val Gooding, all of whom are independent Non-Executive Directors. Bridget Macaskill and Jamie Dundas were members of the Committee until leaving the Board on 12 July 2006 and 2 February 2007 respectively. The Committee met four times in 2006/07.

Tim Fallowfield, Company Secretary, acts as secretary to the Committee. Philip Hampton, Justin King and Imelda Walsh, Human Resources Director, are invited to attend Committee meetings. The Committee considers their views when reviewing the remuneration of the Executive Directors and Operating Board Directors. They are not involved in discussions concerning their own remuneration.

The responsibilities of the Committee include:

• determining and agreeing with the Board the broad remuneration policy for the Chairman, Chief Executive, Chief Financial Officer and the Operating Board Directors;
• setting individual remuneration arrangements for the Chairman, Chief Executive and the Chief Financial Officer;
• recommending and monitoring the level and structure of remuneration for those members of senior management within the scope of the Committee, namely the Operating Board Directors; the Company Secretary and any other executive whose salary exceeds that of any Operating Board Director; and
• approving the service agreements of each Executive Director, including termination arrangements.

The Committee’s terms of reference are available on the Company’s website (www.j-sainsbury.co.uk/governance).

The Committee is authorised by the Board to appoint external consultants and advisers if it considers this beneficial. Over the course of the year, the Committee was advised by Deloitte & Touche (“Deloitte”). During the year Deloitte also advised on unrelated tax matters and provided organisational consulting services to the Company. They attended three of the Committee meetings during the year and received copies of all papers submitted to the meetings. Towers Perrin provided comparative data which was considered by the Committee in setting remuneration levels. The Committee has also been advised by Linklaters, who also provided legal advice to the Company, whilst Total Shareholder Return (“TSR”) calculations are provided by UBS, who provided broking and banking services to the Company during the year.

Remuneration policy

It is the intention of the Committee that Executive and Operating Board Directors’ remuneration should be competitive, both in terms of base salary and total remuneration, taking into account the individual Director’s role, performance and experience. This approach is designed to promote the Company’s short and long-term success through securing and retaining high calibre executive talent.

Basic salary is targeted around the median of the market with an opportunity to earn above median levels of total reward in return for exceptional performance. A significant proportion of the total remuneration package is performance related, aligning management’s and shareholders’ interests. Remuneration policies and practices are aligned with the key corporate strategy, targets and objectives and are designed to create long-term value for shareholders.

In 2006, following an extensive consultation exercise with shareholders and institutions, the Committee formulated a new incentive framework (the “Value Builder” framework) to support the business strategies over the medium to longer term. This was consistent with best practice and was approved by shareholders at the 2006 AGM.

The Value Builder framework is based upon a number of key principles so as to:

• build on the sales-led recovery plan announced in October 2004 by embedding key measures of financial and capital efficiency;
• support strong performance of the core business and delivery of shareholder value by generating quality earnings, growing profits and generating cash for future investments and/or return to shareholders;
• provide a common focus for the top 1,000 managers (from Chief Executive to supermarket store managers) on critical business measures;
• retain and motivate talent for the longer term; and
• provide competitive reward opportunities for delivering exceptional performance.

The Value Builder framework remains a key part of the Company’s total remuneration package and consists of two elements, a deferred annual bonus plan with a performance related share match and a long-term incentive plan. These plans are described in detail below.

For 2007, the Committee is looking at ways of operating the existing remuneration framework in line with the following key principles:

• provide sufficient incentives to retain and motivate the management team during a period of change for the Company;
• fully utilise the existing best practice incentive framework, and build on its success; and
• reward performance on a fair and equitable basis.

Set out in the relevant sections below is an overview of how the Committee intends to align the remuneration framework with these key principles over the next financial year.